Investors do not need to get lost in the tax weeds to understand the significance of the ballooning overseas tax strategies. Ultimately, it can indicate the reliability of a company's source of profits and stock appreciation. "I immediately thought of how Apple has almost all of its cash outside of the U.S. and how it spent about $100 billion on stock buybacks. How'd that massive buyback work out for shareholders? Not too well," said Mitch Goldberg, president of investment firm ClientFirst Strategy.
During the post-financial crash extended bull market, many investors have expressed concern that stock values have been inflated by multiple forms of financial engineering: central banking policy inflating asset values and stock buybacks. Tax avoidance could be another underappreciated non-financial trigger for stock market gains in recent years.
"Not that companies trying to maximize profits is necessarily a bad thing, but rightly or wrongly, investors have given companies a pass on overseas tax 'avoidance,' which is a phrase that is quickly morphing into tax 'evasion,'" Goldberg said.
"This goes beyond the effects of corporate tax rates and repatriation of overseas cash," Goldberg said. "No doubt, corporate profits are higher because of this, and now maybe the reported net income will have to have an additional footnote. And we all could agree that we don't like footnotes, because they indicate that there is something opaque about them, or at the very least, they indicate added complexity to understanding the real bottom line of a company. ... This Apple issue just made overseas cash and tax rates a valuation issue," he added.
Average investors shouldn't expect much of a push from the institutional investing heavyweights that can use their stakes in company stock to influence policy at major corporations. A spokeswoman for the Council of Institutional Investors said the overseas tax-haven issue is not one that the council has a formal opinion on for a simple reason: its membership remains divided.
All of its union plans oppose the use of offshore tax havens, because they see it as part of the larger domestic issue of lost jobs. Other institutional investors take the disinterested shareholder view that if it helps the company's bottom line, it is justified. "We've always been a big advocate for disclosure in every area, but we haven't specifically addressed that. ... Our members not united on it," the spokeswoman said.
"Investors can ask sensible questions about this and the non-disclosure," Gardner said. "If you're building a business around tax avoidance you don't really have a business plan. If it appears to investors that companies are putting money in places basically for tax reasons that should be a matter of concern."